Sallie Mae receives federal funds for student loans

WASHINGTON, Aug 20 (Reuters) - Sallie Mae (SLM.N), the largest U.S. student loan company, said on Wednesday it has received federal funding that will help it make about $20 billion in loans this academic year.

The company said it made an initial funding request on Aug. 15 and received funding in three business days for loans eligible under a new student loan market stabilization program mandated by Congress earlier this year.

"We are the first company to receive funds under the U.S. Department of Education's new program that guarantees there will not be a shortage of federal student loans this year," Sallie Mae said in a statement.

The company's stock closed up 10.2 percent at $14.33 on the New York Stock Exchange.

In May, President George W. Bush signed a law that would temporarily allow the U.S. Education Department to buy certain student loans and take other steps to support education finance.

The move was designed to stabilize the $85 billion student loan industry, addressing lenders' warnings of a possible loan shortage in coming months.

The program temporarily allows the Education Department to pump government money into the sluggish secondary market for securities backed by student loans, where many lenders obtain capital needed for making new loans.

It also allows the department to provide funds to state guaranty agencies for making loans to students and colleges in case they are unable to get loans from other sources.

Major student loan providers affected by the law include Sallie Mae, JPMorgan Chase (JPM.N), Bank of America (BAC.N), Citigroup (C.N) and many others.

The government's show of extra support for education finance helped Sallie Mae sell more than $7 billion of bonds backed by student loans during the second quarter, compared with $4.7 billion in the first quarter.

Sallie Mae said on Wednesday that it was approved to participate in the federal program on Aug. 14. It said it will originate $20 billion or more in federal Stafford and PLUS loans eligible for participation in the Education Department's program this academic year. (Reporting by Karey Wutkowski; Editing by Gary Hill)